1.1 The Government Actuary's Department
was created in 1919 as a Chancellor's department to provide actuarial
advice to Ministers and departments. The original focus of GAD
was on the financing of social security, but this rapidly expanded
into all areas of pensions and social security. Starting from
the late 1960s GAD became heavily involved in advising on financial
aspects of the supervision of insurance companies.

1.2 In 1989 a review of the role of GAD
and its financial viability was carried out. This led to GAD adopting
a full repayment régime, charging all clients for actuarial
services, with the exception of the work on population projections
and life tables, and the four-yearly occupational pension schemes
survey. GAD continues to receive a net Vote of about 8 per cent
of the gross voted expenditure.

1.3 By October 2000, GAD had grown to a
staff of 111 (see Annex 1), with gross voted expenditure in 2000-01
of £8.0 million and net voted running costs of £433,000
(plus capital of £219,000). In 1999-2000 GAD provided actuarial
services to around 800 clients.

1.4 The key statutory responsibilities of
the Government Actuary are as follows:

(a) The National Insurance Fund

Reports to parliament are made in connection
with:

 the annual uprating of benefits paid
from the Fund; and

 the annual review of contributions
paid to the Fund.

In addition, a longer-term report to Parliament
(the quinquennial review) is undertaken at least every five years.
A review of the terms for contracting out of the State Earnings
Related Pension Scheme (SERPS) is also undertaken at least every
five years.

Reports to Parliament are made when new social
security legislation involving any significant long-term consequences
is introduced into Parliament. From time to time further statutory
reports to Parliament may be called for, for example, the November
2000 report to Parliament in accordance with section 36 of the
Child Support, Pensions and Social Security Act 2000 on the likely
effects of increasing the basic state pension in line with earnings.

In relation to pension-sharing on divorce, the
preparation of actuarial tables to facilitate the sharing of SERPS
entitlements.

The preparation of actuarial tables in relation
to the premiums to be paid to the state scheme in certain circumstances
by private pension schemes ceasing to contract out of SERPS.

(b) Public sector pension schemes

A wide range of statutory responsibilities are
placed upon the Government Actuary in relation to actuarial calculations
for members of public sector pension schemes, such as the determination
of transfer values.

(c) Matters connected with private pension
arrangements

Preparation of actuarial tables to permit calculation
of the limits on amounts which may be taken from private pension
income drawdown ("income withdrawal") arrangements.

2. PURPOSEOF
GAD

2.1 Stated at its most general, the aim
of the Government Actuary's Department (GAD) is:

To provide mainly public sector clients with
independent, professional, actuarial advice of the highest quality
at reasonable cost.

2.2 GAD exists because government, and the
public sector more generally, needs actuarial advice. An in-house
source of such advice meets the need for:

 consistency and comprehensiveness
of advice, eg across the public service pension schemes;

 experience with handling political
and policy issues; and

 value for money in terms of fees.

2.3 Objectives were set for the department
under the 1998 Public Service Agreement, which formed part of
the three-year deal, starting 1999-2000:

1. to provide actuarial advice to government
departments and other GAD clients in respect of employer-sponsored
pension arrangements and other employee benefits;

2. to provide demographic analysis to support
decision-making across all government departments and social security
projections and other actuarial advice to support decision-making
in social security, pensions policy and the regulation of complementary
pension schemes; and

3. to provide financial and actuarial advice
to support the regulation and supervision of financial institutions,
in particular life and general insurance companies and friendly
societies.

2.4 The rationale for GAD's existence implies
that priority must be given to providing actuarial services to
Ministers, to government departments and to financial regulators
in the UK. However, GAD has a much broader client base than this
and provides services, in the UK and internationally, to clients
in the wider public sector. The business reasons for developing
a broad portfolio of clients are that:

 it provides greater diversification
and hence decreases financial dependence on a relatively small
number of clients;

 it broadens and deepens the department's
knowledge base, so that it can provide an improved service to
core clients;

 it helps to spread overhead costs
and to improve value for money to core clients; and

 it provides opportunities for personal
development of staff.

2.5 The department's aim is to be seen as
a provider of good value high quality actuarial services to governments
and public sector bodies around the world.

3. NATUREOF
GAD'S WORK

3.1 GAD's work involves providing advice
to a wide range of clients, mostly in the public sector. This
advice is mainly in the areas of pensions, social security and
related matters. On pensions, GAD provides an actuarial consultancy
service to a wide range of public sector pension schemes, including
the calculation of funding levels and contribution rates, the
preparation of factors for administrators to use in calculations,
and advice on the transfer of groups of employees between organisations.
GAD also provides advice on the regulation of pension schemes
to DSS, Inland Revenue and other government departments and actuarial
advice to Opra in the day-to-day supervision of pension schemes.
On social security, GAD work has included advice on the development
of Second State Pensions and stakeholder pensions and technical
support in connection with the National Insurance Fund.

4. RELATIONSHIPWITH GOVERNMENT
DEPARTMENTS

4.1 GAD has always had a close working relationship
with the Department of Social Security and its various predecessors.
This arises both because of the Government Actuary's statutory
responsibilities to report to Parliament on the finances of the
National Insurance Fund, and because GAD is a centre of knowledge
and experience on many aspects of social security, occupational
pension schemes, personal pensions, insurance and annuities.

4.2 The Government Actuary is required to
prepare a report, for the Secretary of State for Social Security
and Paymaster General to lay in Parliament, in respect of any
proposal to amend the rates of benefit payable from the National
Insurance Fund or to change the National Insurance Contribution
rates or structure. The Government Actuary is required to report
every five years on the long-term financial prospects for the
National Insurance Fund and, also on a five-yearly schedule, on
the terms for contracting out of the State Earnings-Related Pension
Scheme (and, in the future, the State Second Pension). It is also
custom and practice for a memorandum from the Government Actuary,
on the financial consequences for the National Insurance Fund,
to accompany the laying of any Bill which will significantly affect
the finances of the Fund.

4.3 In addition to these formal responsibilities,
GAD is widely consulted by DSS in regard to many aspects of social
security and pensions policy, including the assessment of the
financial consequences of possible changes to the social security
scheme. GAD assists with the answering of Parliamentary Questions
and other enquiries which concern financial aspects of National
Insurance benefits or contributions.

4.4 GAD provide consultancy support to DSS
on occupational and personal pensions. This includes funding or
solvency requirements for funded complementary schemes, pension
aspects of divorce and assessment of the financial consequences
for schemes of new regulatory requirements.

4.5 GAD provides actuarial and related consultancy
advice to the Occupational Pensions Regulatory Authority (Opra),
including currently seconding two qualified actuaries to Opra.

4.6 In regard to public sector pensions,
GAD advises the Treasury on general policy matters, and individual
departments and agencies on specific scheme matters or issues
relating to particular groups of staff. GAD provides actuarial
advice to the Cabinet Office on the Principal Civil Service Pension
Scheme. Where civil servants are transferred in connection with
the contracting out of services or privatisation, GAD normally
advises the relevant department or agency; ensures that the pension
arrangements proposed for after the transfer meet the criterion
of broad comparability and negotiates a bulk transfer value from
the PCSPS to the receiving scheme which provides protection for
the past service rights of transferring staff at least cost to
the public purse.

4.7 GAD also provides advice to the sponsoring
departments and administrative agencies for most of the other
main public service pension schemes; the Armed Forces Pension
Scheme; the NHS Superannuation Scheme; the Teachers Pension Scheme
and pension schemes for the police and fire services.

4.8 GAD provides a service to all government
departments by preparing and promulgating the official national
population projections every two years. These are widely used
for forward planning purposes and also form the basis for a number
of derivative projections: labour force projections, household
projections, regional and district projections (local authority
and NHS).

4.9 GAD assists National Savings to maintain
the integrity of the ERNIE Premium Bond draw, by testing the results
of the draw each month to ensure that there is no evidence of
bias or non-randomness.

4.10 GAD's primary role is the provision
of advice to support the development of policy. GAD does not have
any policy-making responsibilities of its own.

5. RELATIONSHIPWITH FINANCIAL
SERVICES AUTHORITY

5.1 GAD provided actuarial advice for many
years to the Insurance Division of the Department of Trade and
Industry on actuarial questions relating to the supervision of
insurance companies. GAD continued to fulfil this role when responsibility
for insurance supervision passed to HM Treasury in January 1998
and when it passed to the Financial Services Authority in January
1999.

5.2 At the end of October 2000, FSA gave
formal notice to GAD of the termination of these arrangements
and of their intention to transfer the actuarial advice function
in-house. On the expiry of the six month notice period, at the
end of April 2001, those staff at GAD who are engaged on work
for the FSA will be transferred to the FSA, together with the
actuarial advisory function. Staff will be given individual offers
of appointment as permanent employees of the FSA. The transfer
is being treated under the provisions of the Cabinet Office "Statement
of Practice on Staff Transfers in the Public Sector" (January
2000). This, inter alia, means that the principles of TUPE
apply and past service pension rights will be protected under
the associated Treasury Guidance "A Fair Deal for Staff Pensions"
(June 1999).

6. FUTURE WORK
PROFILE

6.1 Following the transfer of the staff
concerned to the FSA, GAD can clearly be expected to have a reduced
level of staffing in 2001-02 compared to the current year, and
have correspondingly lower salary outgoings and fee income. The
need to reduce accommodation costs to remain financially viable
if such a transfer were to happen had already been identified
and GAD moved to a different building in 1999-2000, saving around
£400,000 on overhead expenditure.

6.2 GAD has reviewed its future work programme
to ensure that the anticipated future financial position remains
reasonably stable. It is impossible for the most part to project
in advance which particular clients will seek advice from GAD
and how the income in future will be generated by particular clients.
However, it is expected that GAD will be able to keep within its
financial targets, taking account of the saving in accommodation
costs and the expected demand for GAD services.

6.3 There has never been any shortage of
work to occupy as many professional staff as we can recruit, even
with active, and virtually continuous, recruitment competitions.
More fee income could be generated from existing clients. Without
finding any new ones, if GAD were successful in recruiting more
actuarial resources to meet all demands. There are also considerable
opportunities for new sources of work, including increasing the
amount of work done for overseas clients on those topics on which
GAD has particular expertise, for example on social security and
public sector pensions financing and reform.

7. WORKFORCEAND PERSONNEL
ISSUES

7.1 GAD is a small and specialised department,
with a high proportion of staff who have, or who are studying
for, a professional actuarial qualification. Annex 1 summarises
the development of GAD's overall staffing structure from 1 April
1979 to 1 April 2000. As can be seen, in recent years the numbers
of actuarial staff have grown steadily. The penultimate column
shows the staff in post at 31 October 2000, excluding three secondees
to FSA and two to Opra. There will be a reduction when possibly
up to 20 staff, including the three secondees, transfer to the
FSA at the end of April 2001. The net effect, allowing for recent
recruitment, will be to reduce the departmental complement to
roughly the same as at the end of 1999, as shown in the last column
of Annex 1.

7.2 GAD competes with private sector employers
for scarce actuarial resources. Since 1989, when GAD moved onto
a full repayment financing basis, actuarial salary levels have
had regard to the need to be competitive in the recruitment and
retention of qualified and trainee actuaries. GAD was one of the
first government departments to introduce a fully performance-related
pay system. Pay increases continue to be fully dependent on performance.
However, given public sector constraints, it is inevitable that
salary levels are increasingly out of line with the private sector,
especially for more senior staff.

7.3 GAD seeks to maintain and increase its
actuarial resources through the recruitment of good quality actuarial
trainees, most of them straight from university. Substantial support
is provided to enable them to pass the examinations of the Faculty
and Institute of Actuaries, the professional bodies for actuaries
in the UK. This includes study time, mentoring, paid subscriptions,
exam fees and tuition fees and a strongly supportive environment.

7.4 In the light of rapidly growing demands
for GAD's services, and with a view to strengthening GAD's professional
skills with those who have private sector experience, there is
a virtually continuous programme of trying to recruit qualified,
or nearly qualified actuaries. Because of the severe shortages
of actuaries in the UK market, this is inevitably a slow process
and it is difficult to make much more progress than replacing
those who leave to work in the private sector. Although it is
never possible to recruit as many actuaries as would be desirable,
slow growth in numbers of qualified actuaries has nevertheless
been achieved.

7.5 GAD achieved recognition as an Investor
in People (IiP) in January 2000 and continues to work to maintain
that accreditation. GAD is committed to equal opportunities for
all and is actively working to increase diversity in its workforce.

7.6 The Institution of Professionals, Managers
and Scientists (IPMS) offers union representation for any GAD
staff who wish to belong. GAD has an active policy of consulting
the Staff Side on all matters which affect staff.

7.7 All GAD staff are located on a single
floor (the 11th floor) of the New King's Beam House, a building
managed by Customs and Excise. Staff operate in an open plan environment.

7.8 GAD does not have any members of the
Senior Civil Service (SCS) as such, although Chief Actuaries,
Directing Actuaries and the Government Actuary are departmental
grades of similar seniority. Regard is had to the terms and conditions
of the SCS where these are relevant.

8. DEPARTMENTAL
AIMSAND
OBJECTIVES

8.1 In November 1998 the Economic Secretary
to the Treasury (EST) approved the Public Service Agreement (PSA)
for GAD under the Comprehensive Spending Review. This confirmed
the aims and objectives of the department and defined the net
resources available to the department over the next three financial
years, starting at £636,000 in 1999-2000 (£423,000 current
expenditure and £213,000 capital expenditure) and rising
by about 2.5 per cent each year with £652,000 in 2000-01
(£433,000 current expenditure and £219,000 capital expenditure).
It is anticipated that GAD's gross annual expenditure in 2000-01
will be of the order of £7.7 million and income is targeted
to bring in at least £7.3 million.

8.2 The PSA requires GAD to achieve challenging
standards of performance in key areas of its business. In particular
GAD is required to agree with its main clients each year detailed
work programmes, requirements for the provision of actuarial advice,
key targets for quality and performance, and evaluation requirements,
as part of the Service Level Agreements. Client satisfaction with
the service is to be evaluated by means of annual client surveys.

8.3 In addition, the PSA laid down targets
which are concerned with improving efficiency and are intended
by Treasury to provide some measures as to whether GAD is providing
better and more cost-effective services. These include the requirement
to have achieved a reduction in overhead recovery rates (the loading
applied to salary-based rates in determining fees), the introduction
of a competence-based appraisal system and full implementation
of the Management of Business Process computer system (time-recording,
invoicing, accounting, etc), much of which is already fully operational.
GAD was also required under the PSA to work towards the achievement
if IiP accreditation by the beginning of 2000, which was successfully
achieved. Monitoring of the performance of the department as a
whole is by means of an Aggregate Efficiency Index, which combines
several indicators into one measure. GAD also reports annually
on real increases in charge-out rates (net of GDP deflation) and
chargeable hours as a proportion of conditioned hours.

8.4 The Department's level of achievement
against the various PSA performance measures and targets has been
monitored and reported to Treasury on a quarterly basis. This
PSA monitoring will cease at the end of this Financial Year 2000-01
when GAD's 1998 PSA is replaced by the new Service Delivery Agreement
(SDA).

8.5 In July 2000, following the Government's
Spending Review (SR) 2000, the Chief Secretary to the Treasury
approved GAD spending plans for the following three years starting
in 2001-02, on a Resource basis. The Departmental Expenditure
Limit (DEL) for 2001-02 is £685,000 (£461,000 resource
(administration) expenditure and £224,000 capital expenditure),
rising by about 3 per cent each year thereafter.

8.6 GAD, as a small department, was not
required to submit a new PSA. Instead GAD has agreed a Service
Delivery Agreement (SDA), which is copied at Annex 2. The SDA
was developed from the PSA and carries through the more focused
key targets and performance measures from the PSA. Targets in
the SDA are set in respect of timely and accurate actuarial advice,
improving levels of client satisfaction scores, and a refined
Aggregate Efficiency Index. There are also commitments in relation
to Civil Service Reform and, in line with the Civil Service as
a whole, targets in relation to reducing sickness absence rates
and ill-health retirements. The SDA is a public document. Achievement
of targets will be monitored by and reported to Treasury on a
regular basis, as for the PSA.

8.7 As a quasi-commercial operation, GAD's
chief objective is to provide a good quality of service to clients
whilst generating sufficient fee income to cover all outgoings
except for the net voted amount (and separately for net running
costs). GAD carries out annual client satisfaction surveys and
is working to improve the methodology and effectiveness of these.
Consideration is being given to the development of a Business
Manager role to assist in maintaining good relationships with
clients.

8.8 The internal audit function of GAD is
contracted out to the External Business Team of the Department
for Education and Employment. Internal audit is carried out in
accordance with a risk-based methodology.

8.9 GAD's accounts and financial statements
are audited by the National Audit Office. GAD has successfully
introduced Resource Accounting and expects to be monitored on
the basis of Resource Accounts results from 2001-02 onwards.

8.10 Although GAD's business needs had for
many years required the monitoring of finances on an accruals
basis as well as in cash terms, the introduction of the formal
structure of Resource accounts has made significant demands on
finance staff.

8.11 GAD has met the various trigger points
for the introduction of Resource Accounts and prepared fully audited
Resource Accounts for 2000-01, following the unaudited "dry
run" in 1999-2000.

8.12 Cash accounting always sat uneasily
with the operation of GAD's business activities and placed an
unhealthy premium on end-year cash transactions, particularly
on the part of many of our clients. For GAD itself there was also
a critical, and largely uncontrollable, issue over getting just
the right amount of cash income in during the year, when accruals
were relatively stable.

8.13 GAD welcomes the move to vote resources
and monitor utilisation on a Resource Accounts basis. Cash management
will remain a significant issue for GAD, with inflows and outflows
of around £7 million a year having to be managed without
realistic working capital.

8.14 A summary of GAD's Appropriation Accounts
for the last five years is given at Annex 3.

8.15 GAD operates an annual business planning
cycle, in which a five-year strategic plan is developed by the
Management Board. A business plan for the next financial year
is presented to all GAD staff in March, and forms the basis of
for the setting of directorate targets, from which individual
performance targets are cascaded down.

9. INFORMATION
TECHNOLOGY

9.1 GAD has a highly developed PC based
information technology network, with all staff on-line. The nature
of GAD's work means that all professional staff and trainees have
to be fully computer literate. This is true also of most of the
non-actuarial support functions in the department.

9.2 Subject to signing personal undertakings,
all GAD staff have access to external e-mail and the internet.
Communication from clients by e-mail is encouraged and some forms
of advice may be given by e-mail. Up to now, however, there is
no real substitute for formally signed reports and letters conveying
actuarial advice.

9.3 Much of the software for actuarial applications
is developed in-house. However, GAD is currently in the process
of purchasing a pension scheme valuation system, having decided
that this will be the most practical and cost-effective method
of upgrading the systems capability in this area.

9.4 A dedicated Computer Services Section
provides support for the network, for computer hardware and software,
and for IT purchasing and contracting, while the web-site (www.gad.gov.uk)
acts as the prime GAD avenue for Electronic Service Delivery (EDS),
in line with the department's e-business strategy.